America’s economic shutdown, with its layoffs and business failures, could wipe out 5 to 6 million jobs in March alone, according to at least one estimate.

Many people will have to take a pay cut or get their hours reduced. Many who don’t lose their jobs will have to live with salary cuts or reduced hours. Those at the bottom of the economic ladder will be hurt the most and are likely to find themselves in circumstances in which their income can’t meet sudden financial needs. Some will be able to replace their lost income by using their checking accounts’ overdraft protection, pulling cash advances from their credit cards, tapping into savings, taking out personal loans, or borrowing from family or friends.

But not everyone has access to those alternatives. In a country where, according to the Federal Reserve Bank, nearly 40% of the adults don’t have the finances to cover a $400 emergency, and, says the Federal Deposit Insurance Corporation, more than 20 million live in unbanked households, the only option is an unsecured small-dollar short-term loan.

Often called “payday loans,” they are lifelines to many. But they are frequently, and unjustly, maligned.

A recent CNBC article headlined “In the face of an economic crisis, these are the best and worst ways to borrow money” represents the widespread bias toward short-term credit. It names payday loans as “the worst offenders” among the choices available for quick cash.

In Washington state, the media are reporting financial counselors are warning consumers that the “unfolding coronavirus pandemic could cause a surge of desperate people” to take out “predatory payday loans,” while CNBC (again) tells readers to “avoid payday loans” in a story about “8 steps to take if you can’t make ends meet because of the coronavirus.”

Despite efforts to poison their reputation, Americans value payday loans. According to Moebs Services, 23 million of us took out at least one payday loan in 2018. A Harris Poll learned that 96% of payday loan borrowers felt their experience was as expected or better than they expected regarding the terms, while 92% said the same about cost. Ninety-five percent said the decision to borrow or not from payday lenders should be theirs alone, not the government’s.

The typical small-dollar short-term loan is roughly $500. Its duration, says the St. Louis Fed, “usually matches the borrower’s payday schedule,” so it can be a week, two weeks, or a month. On that next payday, the full amount of the loan plus fees is due.

The alternatives for those who need quick cash for emergency car or home repairs, unexpected medical bills, or just to pay the rent and eat in a time of lost income, are few and ugly. For instance, some who have bank accounts can rely on overdrafts to get them through. But it’s a poor choice. Pew Charitable Trusts says using overdraft programs is a form of “costly, inefficient credit.” There should be an emphasis on “costly.” While consumers spend $9 billion annually on small-dollar short-term loan fees, they pay nearly $35 billion a year in overdraft charges.

Those who have no overdraft protection yet still write checks backed by insufficient funds risk having their accounts closed, and worse. Knowingly paying with a check that will bounce can be a misdemeanor, and in some states a felony.

Other alternatives when a payday loan isn’t an option include pawn shops, where interest rates are high, and loss of property — the collateral put up for the loan — is a possibility when the money can’t be repaid under the terms. The more desperate borrowers will be driven into the clutches of the black market, where they will go into debt to loan sharks. In these underground arrangements, interest rates are steep and the penalty for late payment can be the loss of borrower’s health.

As the economic shutdown continues to take a toll, many Americans may simply have no good choices but to take out small-dollar short-term loans. Though harsh regulatory regimes make it difficult for lenders to extend credit in some states, payday loans are still legal in 38. Lawmakers in states where the loans are prohibited should lift the restrictions, at least on a temporary emergency basis, so those who need loans can secure them online without worrying about legal restrictions.

The legal states that have erected insurmountable regulatory barriers, such as California, where a 36% rate cap “is a de facto ban” on small-dollar short-term lending because it doesn’t allow lenders to earn a profit that will keep them in business, also need to relax their rules.

Elected officials need to understand how cruel it is to block the millions of Americans whose circumstances are far different than theirs from obtaining the loans they need.

Kerry Jackson is the fellow in California studies for the Pacific Research Institute, and a freelance journalist.

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